impact if society of actuaries examination redesign on undergraduate actuarial education, The
Bishop, James
ABSTRACT: Beginning in the year 2000, the Society of Actuaries is changing the format and content of the actuarial exams. The impact of this change will be felt by every college/university offering actuarial programs. This paper analyzes these changes and their effect on the actuarial curriculum at Bryant College. In addition, we surveyed many students and members of the actuarial community in order to understand the perceived effect of the changes throughout the industry.
KEYWORDS: Society of Actuaries, examination redesign, actuarial, business curriculum.
EXAMINATION REDESIGN
The Society of Actuaries created a sequence of exams during the late 1890’s, which have been the major influence on the education of an aspiring actuary. Changes in this system have been made during the 1970’s and 1980’s. These changes primarily reorganized the way in which the material was tested by dividing larger exams into smaller pieces. The more advanced exams were changed to allow for open-ended answers and less memorization of formulas[1]. The actuarial examination redesign being implemented starting in the spring of 2000 is a more substantial change in content and philosophy than changes made in the past.
In this paper we discuss the exam changes with regard to undergraduate education including the actuarial curriculum, career goals, and employment opportunities. As part of this study we have surveyed many members of the actuarial community including FSA’s (Fellows), ASA’s (Associates), and actuarial students. The purpose of the survey is to determine the perceived effect of the exam changes on the actuarial profession.
Structural change in the new actuarial exam sequence essentially combines two or three exams from the old system into one exam under the new system. Previously, approximately fifteen exams were required for ASA designation. Under the new system the number of exams necessary to become an ASA will be reduced from fifteen to six and designated as Course 1 Course 6. Similarly, twenty-three exams had to be passed in order to obtain the designation of FSA, whereas, eight exams plus extra professional development credits will fulfill the requirements for Fellowship under the new system.
More importantly, there is a significant shift in the type of material tested (i.e., the content of the exams). Traditionally, mathematical theory has been the focus of the early exams. This early focus on mathematics has led to college actuarial programs being developed solely in mathematics departments (whether within universities or colleges of business) with courses such as calculus, probability, statistics, operations research, and numerical analysis comprising the core curriculum. With the recent exam restructuring, economics, finance, and applied mathematics will play a much more significant role in the early exams.
Perhaps the most significant content change for undergraduate students is the revision of the first two exams. These exams under the old system, which covered calculus, linear algebra, and mathematical statistics, have been combined to create the new Course 1 under the new system. However, some of the theoretical topics such as linear algebra, directional derivatives, and hypothesis testing will be omitted from the new Course 1 and the topics which remain will often be tested in a business setting, requiring some basic economics and finance knowledge.
The new Course 2 is also a major change since it tests the fundamentals of economics and finance (subjects not taught in the mathematics department). The introduction of these business topics so early in the exam sequence presents a challenge to the non-business student, as well as college actuarial programs.
Course 3 and Course 4 focus on many of the traditional topics involving probability and statistics including actuarial mathematics, survival theory, probability modeling, time series, distribution theory, simulation, and nonparametrics. These Courses combine elements from several exams under the old system and test the material in a more applied setting.
RATIONALE FOR THE CHANGE
The main reasons for change were discussed in the SOA Conversations Newsletter Winter 98-99[1]. The Actuarial profession must continue to change to reflect new challenges to actuaries and to the companies that employ them. These challenges, according to Roy Goldman, who was instrumental in the creation of the new exam system, include: “competition from other professionals, consolidation of companies, and volatile (risky) economic and investment markets.” The new exam structure is an attempt to simplify the current system which is complex and redundant and which consumes a great deal of the time of both those sitting for the exams and those administering and grading the exams. The Task Force which designed the new exams felt that the goal of the education of actuaries to meet the challenges of the future could be met with a simpler set of exams whose topics and questions better reflected the knowledge needed for their jobs.
The new exam sequence will meet these challenges by implementing changes reflected in the following list of specific goals [1]:
* Simplification of the complex set of required and elective exams with the intent of making the role of an actuary more clearly defined.
* Removal of existing overlap in the current exam topics
* Consumption of less overall time for all people administering and tracking the numerous exams
* Examination only of the subjects essential to an actuary’s education.
* Provision of more of a business context for questions on the exams.
* Inclusion of all types of contingencies, not just life contingencies
* Inclusion of models from outside insurance and pensions.
Under the old system, achieving the designation of ASA required 200 credits, acquired through a combination of required exams, elective exams, and intensive seminars. Therefore, not every ASA had the same background. Under the new system, the ASA designation is attained by passing Courses 1-6. There will be more uniformity and better understanding of what is required in the education preparation of all actuaries.
Technology plays a major role in redefining the knowledge essential to an actuary’s education. Elimination of numerical analysis and linear algebra as tested topics is an example of this shift. Computer programming of long tedious computations that were previously done by hand has led to a decreased need for numerical approximation methods and error analysis. In today’s environment there is a growing interest in probability models and predicting trends. Human decision-making is necessary in determining appropriate probability models – computers do the number crunching. The new Course 3 and Course 4 emphasize this shift in actuarial studies. These courses focus more on applying probability and statistical methods to practical actuarial situations. For example, the linear programming section of the old operations research exam material is no longer tested since computation is not done by hand any more. Similarly, numerical analysis is no longer necessary since the errors of doing tedious computations by hand are no longer a concern.
In the new Course 1 and Course 2, the SOA clearly establishes the importance of business applications in the actuarial field. Many of the new Course 1 problems are given in the context of financial risk. Course 2 is completely business related. The SOA is also attempting to reach out to all actuarial disciplines to obtain a more diverse base of problems from which to test. The effort also involves the academic community.
EFFECT ON COLLEGE ACTUARIAL CURRICULUM
Curriculum changes are in the midst of implementation for actuarial programs across the country. Plans for these changes have been designed as far back as October 1997 at the University of Wisconsin and April 1998 at Lebanon Valley College. The Lebanon Valley College school curriculum appears in the SOA Newsletter, Expanding Horizons [2]. Now that more information is available from the SOA we are adapting our current implementation of the Bryant College actuarial curriculum (originally proposed in the fall of 1998).
Bryant College is a small business college in northern Rhode Island offering a Bachelor of Science degree with a concentration in Applied Actuarial Mathematics. Since passing actuarial exams is an important factor in a student’s ability to obtain a job upon graduation, an objective of the Bryant program is to prepare students to pass at least .one exam before graduating. In response to the significant exam changes brought about by the Society of Actuaries, we have redesigned Bryant’s actuarial curriculum such that our students will continue to be well prepared for the early exams under the new system.
First, it was necessary to review the calculus and mathematical sequence required for our freshman and sophomores. In order to provide the opportunity for students to pass the new Course 1 exam by the end of their second year, these courses needed to be revised by rearranging topics and including more business applications. We did not significantly alter the content of these courses since the topics contained in the syllabi comprised basic content necessary for any mathematics or actuarial science major.
Next, we analyzed the new Course 2 exam, which requires courses in macroeconomics, microeconomics, and finance. Since Bryant students receive a degree in business administration, these courses have always been part of the core curriculum. With the help of the appropriate departments, we needed to be sure the courses covered the necessary material to ensure adequate preparation and that they were taken by the students in a timely fashion. Schools offering actuarial programs in mathematics departments that are not within the college of business need to consider requiring economics and finance courses from other departments.
Other significant changes were needed in the traditional courses: linear algebra, numerical analysis, and operations research. Under the new system, linear algebra and numerical analysis are no longer tested directly. Operations research topics still being tested under the new system are distributed into the new Courses 3 and 4. We asked the questions: Does this mean that linear algebra and numerical analysis should simply be dropped from our curriculum? Where does operations research fit in? We believe that many of the topics covered in these courses are still necessary in order to prepare for more advanced material. Therefore, we have designed a new matrix algebra and applications course combining critical material from both linear algebra and operations research. The topics retained for inclusion in this newly designed course are considered to be fundamental to a sound mathematical background. Although numerical analysis will no longer be taught, some of the important concepts will be covered in other actuarial courses.
Due to the strong emphasis on probability, statistics, and mathematical models in the new Courses 3 and 4, we added an advanced probability course into our curriculum, which covers topics such as simulation, Markov chains, Poisson process, and queuing theory. As discussed earlier, changes are also necessary for our three-semester calculus sequence and three-semester statistics sequence. More emphasis will now be placed on word problems and applications of the concepts. Other areas will get less emphasis (directional derivatives, gradients, hypothesis testing, and estimation for example). However, the number of courses and general subject matter for calculus and statistics remains unchanged.
The transition period for the curriculum changes will be relatively short and students will basically follow the new schedule beginning in the fall of 2000. The adjustment that students will have to make in preparation for the new exams given by the SOA is more serious. Actuarial students will need to split their focus between the mathematical studies and the economics/finance studies necessary to pass Course 1 and Course 2. The coursework required to take the first two exams under the new system is complete after two years. Unfortunately, many of the classes preparing for Course 1 and Course 2 will be given simultaneously and sitting for these two exams at the same time will be difficult. Under the old system, the material for the first two exams was presented in sequence and therefore the exams were normally taken one at a time.
INDUSTRY RESPONSE TO EXAMINATION REDESIGN
In order to best prepare our actuarial students we must keep in mind where they are headed in their careers. We surveyed a variety of people in the actuarial field to gain an understanding of the perceived effect of the redesign on the industry as a whole.
The responses to the survey included mostly positive reactions to the proposed changes in the exam structure. The main benefit of the restructuring was felt to be the creation of a clear simple path to the goal of attaining ASA and FSA credentials. There was also a strong feeling by many that more applied testing would produce better candidates for the workplace. Much of the theory taught in preparing for the old exams has no application. As one respondent declared, “I can’t remember the last time I had to calculate a continuous annuity”. With regard to stimulating and retaining interest in the field, many respondents pointed out that applied exam problems should be more motivational for students than the old theoretical problems. Therefore, a majority of respondents felt that the exam changes would stimulate growth in the actuarial field.
Most of the reactions from the respondents were positive but some concerns were voiced. Serious reservations were expressed with respect to the first two exams, which are critical in determining the amount of interest that will be maintained in the field. First, it was felt that it could be overwhelming to study for large five-hour exams. In addition, these larger exams may also dilute the expertise in particular areas. Another concern expressed is that the second exam, which concentrates on economics and finance, would force an actuarial college student to split his/her focus between mathematics and business disciplines.
Another complaint from a few respondents about the new system was that fundamental mathematical theory would no longer be as strong as it was in the past. As one respondent aptly expressed it, “how does one attack new problems and situations that arise in the field except by understanding the underlying mathematical theory.” With an increase of emphasis on applied topics, there is bound to be some sacrifice in the coverage of theoretical topics.
EFFECT ON UNDERGRADUATES, EMPLOYEES, AND CAREERS
So what are the effects of the exam restructuring on our actuarial students and their potential employers? There will be a period of uncertainty for those colleges and universities having actuarial programs. Preparing courses teaching the fundamentals of the required subjects while also being sensitive to the exam requirements will be a challenge during the transition period. Students and instructors must adapt to the new actuarial curriculum. Exam preparation involves careful analysis of published material and sample exams. The new exams are scheduled to begin in May 2000 and only one sample exam is currently available for each of Courses 1 – 4. Since each of these Courses is administered only twice each year, it will take a couple of years for a reasonable base of study materials to be established. At the same time the college classes geared toward exam preparation will need to be fine-tuned as information and study materials are made available.
Meanwhile, employers must reconsider their criteria for selecting entry level actuarial students. Selection of actuarial candidates has been traditionally done through mathematics departments with more serious consideration going to those who have passed Exam 100 (calculus and linear algebra) and/or Exam 110 (probability and statistics). In the future, there may be qualified candidates from disciplines other than mathematics. Students who pass the new Course 1 understand the fundamentals of calculus, probability, statistics, and some risk theory. Students who have passed Course 2 understand the fundamentals of economics and finance.
In the long term, we feel that there will be several benefits for students, colleges, and employers resulting from the SOA exam redesign. Students considering the actuarial field will enjoy a dramatic change from a long and confusing exam sequence to having a clear goal of passing six exams for an Associate designation with the SOA. In addition, the increase of practical subject matter through a combination of applied mathematics, finance, and economics will stimulate more interest and motivation for the actuarial student.
Similarly, by simplifying the exam sequence and making the emphasis of the exam content more applied, colleges will have a better chance to attract and sustain a broader range of actuarial students, particularly at business colleges such as Bryant. By broadening the scope of the early actuarial exams, the SOA will increase the visibility of the actuarial field within the business programs of colleges and universities, even if they do not have actuarial programs. The increased emphasis on business will entice students with strong math skills from areas such as economics and finance (perhaps even taking the Course 2 exam first).
As it stands today there is far more job demand for Bryant’s graduating actuarial majors than there are students to supply. This new exam focus has the potential to not only increase interest in the actuarial field, but also broaden the range of skills of graduating actuarial seniors. Eventually this will broaden the scope of the actuarial job market and make the actuarial profession more visible as a whole.
Additional information can be obtained from the Society of Actuaries, 475 N. Martingale Rd., Suite 800, Schaumburg IL 60173-2226 USA, (847– 706-3584), or at the SOA website: www.soa.org.
For Course descriptions and sample exams see the website: vww.soa.org/eande/courep.html.
For a description of the exam transition rules see the website: www.soa.org/eande/conver.html.
1In addition, a first course (special section for actuarial majors) is required in microeconomics, macroeconomics, and finance.
REFERENCES
1. Goldman, R. Philosophy and Rationale of the Year 2000 Changes. Winter 1998-1999. Actuarial Faculty Forum: Conversations. 9: 2-4. Schaumburg IL: Actuarial Education and Research Fund.
2. Hearsey, B. V. 1998. An Actuarial Curriculum for 2000. Expanding Horizons Newsletter. 17: 1, 6-7. Schaumburg IL: Education and Research Section of the Society of Actuaries.
James Bishop and Phyllis Schumacher
ADDRESS: Bryant College – Suite C210 1150 Douglas Pike, Smithfield RI 02917 USA.
BIOGRAPHICAL SKETCHES
Jim Bishop is currently an Assistant Professor at Bryant College. He received his PhD from Northeastern University in 1996 working in the area of probability and statistics. He currently teaches actuarial mathematics at Bryant College and has passed nine actuarial exams under the old system (Courses 1-4 under the new system). Jim currently splits his focus between industry work in the area of pensions and theoretical work involving stopping rules and probability.
Phyllis Schumacher is currently a Professor at Bryant College. She received her PhD in Statistics from the University of Connecticut in 1989. She is currently teaching actuarial statistics at Bryant and is the advisor to the Student Actuarial Association. In addition to actuarial curriculum issues, her research interests include gender issues related to mathematics, and computer and Internet use.
Copyright PRIMUS Dec 2000
Provided by ProQuest Information and Learning Company. All rights Reserved
